According to American Association of Retired Persons (AARP), there are 8.4 million student loan borrowers over age 50 — roughly 22% of the total number of student loan borrowers.1 The average balance owed by this group of older borrowers is $37,739. A good portion of the debt is attributed to parent PLUS loans taken out to help cover the cost of their children’s higher education. While there’s a lot of discussion around student loans, most of the information and resources are focused on loans borrowed for one’s own education. This post shares important details about parent PLUS loans.
The federal parent PLUS program launched in 1980 and contained borrowing limits that Congress subsequently lifted in 1993. Since then, parents have been able to borrow up to the cost of undergraduate attendance (e.g., tuition, housing, books, etc.) less any financial aid their student receives.
The lifting of loan limits dramatically increased the total amount a parent could take out under the PLUS program, subsequently increasing average borrowing amounts and repayment challenges. For example, Federal Student Aid (FSA) reports that in the last seven years outstanding parent PLUS debt grew by 67% when all other outstanding federal student loan debt combined grew by 45%.
Parent PLUS Loans by the Numbers
|Total Debt Amount||$103.6 billion|
|Total Number of Borrowers||3.6 million|
|Average Debt per Borrower||$28,778|
|Interest Rate: 2021-22 School Year||6.28%|
|No, but parent's ability
to repay is assessed.
Troubling trends show parent PLUS borrowers are not investing in retirement plans, not adding to their savings, delaying retirement, and not paying off large purchases like their home or car as quickly as they otherwise would because they’re diverting funds to pay back student loans.
Six Facts to Know About Parent Plus Loans
While parent PLUS loans can be a vital way to cover a higher education funding gap, they have shortcomings. The following clarifies some important facts and features.
- Parent PLUS loans are not eligible for Income Driven Repayment (IDR) Plans. IDR plans are a helpful repayment tool as they are based on one’s income and family size. However, parent PLUS loans do not qualify unless the parent PLUS loan is consolidated into a Direct Consolidation loan. Once consolidated, the loan can be repaid under Income Contingent Repayment (ICR), one of the IDR plans. Prior to consolidating, it’s important to review the pros and cons of consolidation. It can result in the loss of certain benefits, such as interest rate discounts, principal rebates or some loan cancellation benefits.
- Parent PLUS loans are eligible for Public Service Loan Forgiveness (PSLF) and Temporary Expanded PSLF (TEPSLF) when based on the parent borrower's employment, not the student for which the loan was borrowed. These ED programs provide federal student loan forgiveness after a borrower has made 120 qualifying payments under specific repayment plans, all while employed by a qualifying employer (e.g., a U.S. federal, state, local, or tribal government or nonprofit organization). To realize this benefit, parent PLUS borrowers have to repay their loans under ICR, since PSLF forgives any remaining balance after 10 years of qualifying payments.
- Parent PLUS loans are not eligible for the tax-free contribution that employers can make per Section 127 of the Internal Revenue Code. Student Loan Repayment Assistance (SLRA) is an employer-provided benefit that helps employees pay down their student loans. Employer contributions to an employee's student loans (taken for for their own education), up to $5,250 annually, are tax-free through 2025. Although employers are welcome to help pay down parent PLUS loans, they’re ineligible for the tax benefit because the loans are not for the employee’s own education.
- Parent PLUS loans were covered by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) and as such their payments and interest were postponed beginning on March 20, 2020. The payment suspension is set to end on May 1, 2022.
- Parent PLUS loans, or a portion of the loan, may be discharged under certain circumstances, such as:
- The parent borrower dies; becomes totally and permanently disabled; has their loan eligibility falsely certified by the school or through identity theft; or, in rare cases, files for bankruptcy.
- The child for whom the parent borrowed dies; couldn’t complete their program because the school closed; or withdrew from school but the school didn’t pay a refund for the loan money that it was required to pay under applicable laws and regulations.
Parent PLUS loans have higher interest rates compared to undergraduate Direct loans. The interest rate is also fixed for the life of the loan. Loan refinancing through a private lender is an option for parent PLUS loan borrowers to consider if they are seeking a lower interest rate. However, it’s important to weigh the pros and cons such as lost benefits, fee amounts, interest rate, tax implications, length of repayment term, available discharge options, etc.
Share this post with someone you know with parent PLUS loans who may be interested in learning more.
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